401(k)
401(k) plans enable workers to save and invest a piece of their paycheck pre-tax. As such, they are among the most popular type of tax-advantaged retirement plan available today. However, many plan sponsors require guidance with plan design and assistance with the administrative tasks associated with managing retirement plans.
Depending on the type of plan, 401(k)s are also subject to different types of non-discrimination tests. For these reasons it is important to understand the best plan for your organization or client, and to find a partner experienced in designing and maintaining compliant 401(k) plans.
PROFIT SHARING
The profit-sharing plan is generally the most flexible qualified plan that is available to employers. Company contributions to a profit-sharing plan are usually made on a discretionary basis and each year the employer decides the amount, if any, to be contributed to the plan.
There are several other benefits for employers to offer profit sharing as a benefit, but proper administration and management of profit-sharing plans is crucial. Improperly managed plans can result in costly fines and penalties. A knowledgeable third-party administrator can help your clients or company avoid these risks.
403(b)
403(b) plans are similar to 401(k)s in the respect that they are both qualified tax-advantaged retirement vehicles offered by employers. However, 403(b) plans differ in that they are only available to certain government employees (schools and hospitals) and non-profit organizations.
There are other differences as well. For instance, 403(b) plans are not subject to the same type of testing that 401(k) plans are subject to. If you have questions regarding 403(b) plans, we are here to help.
457(b)
A 457(b) plan is a non-qualified tax-deferred compensation plan that works very much like a 403(b) or 401(k). This plan is restricted to the government and certain nonprofits, and employers are not required to make the plan available to all employees.
The employer’s plan document should spell out specific rules for contribution and distribution. We are a qualified 457(b) partner and have successfully guided many organizations through the design and administration of these benefit plans.
DEFINED BENEFIT
Instead of accumulating contributions and earnings in an individual account like defined contribution plans (profit sharing or 401(k)), a defined benefit plan promises the employee a specific monthly benefit payable at the retirement age specified in the plan.
Defined benefit plans are usually funded entirely by the employer, and the employer is responsible for contributing enough funds to the plan to pay the promised benefits, regardless of profits and earnings. Employers that want to shelter more than the annual defined contribution limit may want to consider a defined benefit plan since contributions can be substantially higher, resulting in a faster accumulation of retirement funds.
CASH BALANCE
Sometimes referred to as “hybrid plans”, a cash balance plan is a type of defined benefit plan that resembles a defined contribution plan. A traditional defined benefit plan promises a fixed monthly benefit at retirement that is usually based upon a formula that takes into account the employee’s compensation and years of service.
A cash balance plan looks like a defined contribution plan because the employee’s benefit is expressed as a hypothetical account balance instead of a monthly benefit. As in a traditional defined benefit plan, the employer bears the investment risks in a cash balance plan.
DAVIS BACON
The Davis-Bacon and Related Acts apply to contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works.
Davis Bacon plans are IRS-approved plans designed specifically for open shop contractors who work on Davis-Bacon, State Prevailing Wage Jobs or Service Contracts. These plans can reduce payroll taxes (FICA, FUTA, SUTA) and general liability insurance premiums, resulting in reduced overhead and higher profits.
NON-ERISA
In non-ERISA plans employees choose the investments and manage the deposits and withdrawals of funds. However, employers are still involved in compliance activities related to the plan. Only certain types of organizations may lawfully use non-ERISA retirement plans. Most non-ERISA plans are used by churches, religious organizations, public schools, hospitals and nonprofit organizations.
It’s important for organizations to understand the requirements related to non-ERISA retirement plans. Choosing the wrong retirement plan classification can come with significant penalties from the IRS and the Department of Labor.
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